Sterling extends drop versus euro after German fiscal boost
Sterling was last at 83.85 pence per euro, down about 0.2% on the day. It's dropped about 1.5% this week, and is on course for its biggest one-week fall since January 2023.
"It's all to do with the broad-based euro optimism that we've seen with this shift in fiscal policy in Germany," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
On Tuesday, the parties looking to form the next government of Germany, Europe's largest and the world's third largest economy, agreed to loosen fiscal rules and create a 500 billion euro special fund to boost infrastructure.
That sent the euro surging against major peers and pushed bond yields higher on expectations for more borrowing.
Major investment banks have been quick to lift their growth forecasts for Germany and the euro zone bloc, while some now expect fewer interest rate cuts from the European Central Bank.
The ECB announces policy later on Thursday and is widely expected to lower its deposit rate by 25 basis points, the sixth reduction in the easing cycle.
Bank of England rate setters, meanwhile, are generally sticking to their "careful" approach to interest rate cuts, having lowered borrowing costs for the third time since August last month.
Against the dollar, the pound was down 0.1%, having earlier risen to its highest in four months at $1.2924.
Britain's construction sector contracted sharply last month, a survey showed on Thursday.
The preliminary reading of the S&P Global/CIPS UK Construction Purchasing Managers' Index fell to 44.6 last month from January's 48.1, its weakest level since May 2020.
"Rocketing uncertainty around global trade policy, rising materials prices, and the looming payrolls tax hike in April all conspired to further sap confidence," said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics.
The all-sector PMI, which combines services, manufacturing and construction, fell to a 16-month low of 50, down from 50.3 in January.
(Reporting by Samuel Indyk Editing by Bernadette Baum)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Zawya
a day ago
- Zawya
ECB's Schnabel sets bar 'very high' for rate cut as economy holds up
FRANKFURT - The hurdle for another interest rate cut by the European Central Bank is "very high" as the euro zone economy is holding up better than expected despite uncertainty over trade, ECB board member Isabel Schnabel said in an interview published on Friday. Having halved its policy rate in just a year, the ECB has signalled it will now stay put and see how the economy copes with a simmering global trade war stoked by U.S. President Donald Trump. Schnabel expressed a clear preference for keeping rates steady as inflation was moored at ECB's 2% target, the euro zone economy was proving resilient and more government spending in Germany was brightening the outlook. "Inflation is projected to be at 2% and inflation expectations are well anchored," Schnabel told financial newswire Econostream. "In view of this, our interest rates are also in a good place, and the bar for another rate cut is very high." The ECB cut its policy rate to 2% last month - a level that Schnabel said was "becoming accommodative". The ECB's official range for the neutral rate, which is neither accommodative nor restrictive, is 1.75% to 2.25%. She said she would only back a cut if she saw "signs of a material deviation of inflation" from 2% and spoke against "fine-tuning" the rate in response to data such as swings in oil prices. The ECB's chief economist Philip Lane also said recently that the central bank would react to "material" changes in the euro zone's inflation outlook and ignore "tiny" ones. Striking a different tone to some of her colleagues, Schnabel played down recent strength in the euro's exchange rate, saying its "pass-through" to inflation would be limited and it reflected an improved economic outlook. "It seems that the uncertainty is weighing less on economic activity than we thought, and on top of that, we're expecting a large fiscal impulse that will further support the economy," she said. "So overall, the risks to the growth outlook in the euro area are now more balanced." She argued tariffs would prove inflationary over the medium term because of higher costs and less efficient supply chains, "which are not included in our standard projection models". (Reporting by Francesco Canepa. Editing by Alison Williams and Mark Potter)
Zawya
5 days ago
- Zawya
Egypt's non-oil private sector slips in June, PMI below 50 for 4th consecutive month
Arab Finance: Egypt's headline seasonally adjusted Purchasing Managers' Index (PMI) dropped to 48.8 during June 2025 from 49.5 last May, according to the latest S&P Global PMI data. Non-oil private sector witnessed a moderate deterioration in operating conditions at the end of the first half (H1) of 2025, with the survey highlighting further demand weakness and decline in output. The new orders and output dropped further in June, sharply reducing purchasing activity in almost a year. Firms voiced limited optimism towards the year-ahead outlook, with activity expectations dropping to a historic low in June. Businesses cut their purchases for the fourth consecutive month, as output and new business volumes fell. Meanwhile, input cost pressures softened, slowing down the increase in output prices. Also, firms cut staffing for the fifth month running, though the rate of job shedding was fractional. David Owen, Senior Economist at S&P Global Market Intelligence, commented: "Although rates of contraction accelerated from the prior survey, they remained softer than their respective historic trends. Nevertheless, a faster drop in input purchases combined with stalling hiring activity suggests that firms expect demand to remain low and are thereby looking to make cost savings.' 'Overall expectations for future activity were the lowest ever recorded in June, with the respective index having hovered close to all-time lows in 2025 so far,' Owen added. He concluded: 'This downbeat sentiment reflects subdued hopes for order books, as well as concerns that geopolitical risks could cause greater economic disruption.' © 2020-2023 Arab Finance For Information Technology. All Rights Reserved. Provided by SyndiGate Media Inc. (
Zawya
5 days ago
- Zawya
Egypt's non-oil business conditions deteriorate further in June, PMI shows
Egypt's non-oil private sector experienced a further decline in business conditions in June, with contractions in output and new orders accelerating, according to the latest S&P Global Purchasing Managers' Index (PMI) data released on Sunday. The headline PMI fell to 48.8 in June from 49.5 in May, marking the fourth consecutive month below the 50.0 threshold that separates growth from contraction. This decline was driven by weaker demand and a sharp reduction in purchasing activity, which saw its steepest drop in 11 months. "June PMI data pointed to another mild decline in the health of the non-oil sector, driven by sustained decreases in incoming new orders and output volumes," said David Owen, economist at S&P Global Market Intelligence. "Overall expectations for future activity were the lowest ever recorded in June, reflecting subdued hopes for order books, as well as concerns that geopolitical risks could cause greater economic disruption." Employment in the non-oil sector also decreased for the fifth month running, though the rate of job shedding was fractional. Firms expressed limited optimism towards future output, with confidence slipping to a record low. On a positive note, input cost pressures softened, leading to a slower rise in output prices and offering some relief to businesses facing inflationary pressures. (Reporting by Reuters)
